"While you cannot guarantee that short-covering is taking place, this looks, smells and feels like a huge short-covering," said Art Cashin, director of floor operations at UBS Financial Services. "Next week, we have the equivalent of what used to be the Humphrey-Hawkins testimony so we could get a lot of volatility again."

The Dow Jones Industrial Average shot up 169.26 points, or 1.11 percent, to close at a new all-time high of 15460.92. All 30 Dow components finished higher, led by Intel and Microsoft.

The blue-chip index's point gain for 2013 is already greater than any year on record.

The S&P 500 soared 22.40 points, or 1.36 percent, to finish at 1,675.02, logging its sixth-consecutive rally and also setting a new closing high. The index is now on pace for its biggest weekly gain since January. The Nasdaq jumped 57.55 points, or 1.63 percent, to end at 3,578.30, posting its best close since 2000. And the Russell 2000 index hit a new all-time high for the fourth-straight session.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, slid near 14.

The dollar dropped broadly against a basket of currencies, with its index falling to $82.418, its lowest since June 25 and down around 2.8 percent from the three-year high of $84.753. Meanwhile, Treasury prices gained after the government auctioned $13 billion in 30-year bonds at a high yield of 3.660 percent. The bid-to-cover ratio, an indicator of demand, was 2.26, versus the recent average of 2.59.

Among earnings, Yum Brands posted earnings that edged past expectations. But shares of the parent company of KFC and Pizza Hut declined after it posted revenue that was slightly shy of consensus and said sales in the important China market fell 20 percent. Still, the fast-food chain said it expects positive same-store sales in China by the fourth quarter.

Analysts expect S&P 500 earnings to have increased 2.6 percent in the second quarter from a year ago, with revenue up 1.5 percent, according to the latest data from Thomson Reuters.

Red Flags in the Rally

CNBC's Mary Thompson breaks down the one sector that is not seeing a bounce today, and the traders preview tomorrow's big bank earnings. Jim Paulsen, Wells Capital Management, shares why he is "not buying the Bernanke bounce" and thinks stocks are "stuck in a trading range."

Microsoft advanced after the software giant announced a long-awaited restructuring. As part of the reorganization, Microsoft announced the president of its Microsoft Office division, Kurt DelBene, will be retiring.

Nokia rose after the Finnish cellphone maker introduced the Lumia 1020, a smartphone with a 41-megapixel camera, in an effort to catch up with rivals Samsung Electronics and Apple.

On the economic front, weekly jobless claims rose by 16,000 last week to a seasonally adjusted 360,000, according to the Labor Department, above expectations for a reading of 340,000. The four-week moving average of new claims increased by a more modest 6,000 to 351,750.

Meanwhile, import and export prices declined for the fourth-straight month in June, according to the Labor Department.

Gasoline prices are forecast to jump between 10 and 20 cents per gallon within the next few days, driven by rising oil prices and peak driving season. Oil prices have risen in recent weeks on geopolitical concerns, along with declining inventories.

In Asia, the Shanghai Composite rose above the key 2,000 level for a second straight session on hopes that Wednesday's dismal trade data will lead the Chinese central bank to ease monetary policy in an effort to boost growth.